The Securities and Exchange Commission (SEC) announced it will revisit the question of who should safeguard customer cryptocurrency as part of its proposal to update the Custody Rule.
On the 25th of August, the SEC submitted its proposed amendments to the Custody Rule to the Office of Information and Regulatory Affairs (OIRA). OIRA is responsible for reviewing all economically significant regulations.
This comes after the White House crypto meeting between President Donald J. Trump and crypto executives.
As a result of the determination that the proposed amendments will be considered an economically significant regulation, it is currently under review by the White House.
Notably, Commissioners are prohibited from voting on or disclosing information about the proposed rulemaking prior to completion of the OIRA review.
Additionally, the SEC has noted that it anticipates the publication of the proposed rulemaking will occur no later than October, 2026. Once published, there will be a minimum of 60 days for members of the public to provide comments on the proposed rules.
However, this proposal provides some guidance regarding what is expected of a custodian. Still, despite that, it does not provide absolute certainty immediately.
These proposed amendments have yet to be released publicly and therefore cannot be implemented by industry participants at this time. In fact, both analysis and a second commission vote are required before these proposed amendments can take effect.
Therefore, it is likely that industry participants will need to wait several years before compliance becomes mandatory.
Will custody reform unlock institutional demand?
While those custody options remove one barrier, ETF filings show institutions are already positioning for wider crypto exposure. Putting it into perspective, in Q2 2026, institutional Bitcoin [BTC] ETF holdings rose 7.5% to 535,723 BTC, despite Bitcoin’s 14.2% decline.
The proportion of ownership by institutions rose to a high of 44.2%, up from 38.4% ownership. Meanwhile, total ETF holdings decreased 6.6% to 1.21 million BTC. This contrasting trend shows institutions are increasing exposure as others decrease theirs.
However, looking at the bigger picture, moving beyond ETFs introduces another hurdle. This is because custody fees range from four to 15 basis points annually. In addition to that, insurance varies from $200 to $750 million to provide some level of protection for the adviser.
However, it appears smaller advisers may have higher levels of compliance costs. All in all, future filings will show whether reforms extend adoption beyond regulated funds.
